HSBC to launch custody service for tokenized securities

Banking giant HSBC is set to introduce digital asset custody services for tokenized securities such as bonds on the blockchain. The bank expects to go live with the service in 2024.

The service is geared toward institutional investors and will continue expanding the lender’s offerings in the digital asset realm. The move comes just a week after the bank launched a blockchain platform that enabled the ownership of tokenized gold.

HSBC’s upcoming capability aims to provide a secure storage solution for tokenized securities, including bonds and other financial products issued on third-party platforms.

However, it’s worth noting that the custody services will not encompass cryptocurrencies or stablecoins. According to media reports, HSBC maintains a cautious stance toward crypto asset custody beyond tokenized securities, as these assets remain largely unregulated.

TradFi push into Web3

HSBC has partnered with Ripple Labs subsidiary Metaco to facilitate the new venture. Metaco is a custody infrastructure company known for its Harmonize product, which offers comprehensive solutions for institutions involved in tokenization, crypto custody, and smart contract management.

Harmonize is designed to seamlessly integrate with financial institutions’ existing systems, making it an invaluable tool as distributed ledgers continue to play an increasingly prominent role in capital markets and asset representation.

HSBC’s push into Web3 aligns with the growing demand from asset managers for digital asset custody and fund administration services. Many financial industry leaders, including BlackRock CEO Larry Fink, have lauded the potential of tokenized securities for enhancing efficiency and expanding access to various financial instruments.

Meanwhile, regulators are much more open to the idea of tokenization versus cryptocurrencies. Acting OCC chief Michael Hsu said at a conference on Nov. 7 that tokenization holds immense promise in solving the age-old problem of settlement.

The trend is particularly evident in projects aimed at providing more accessible access to the yields of U.S. Treasury securities, among others.

Ripple-backed Metaco

Metaco’s partnership with HSBC is the first significant client announcement made by the company after it was fully acquired by Ripple Labs earlier in May.

Metaco now serves the second-largest bank, HSBC, the third-largest, Citi, and the fourth-largest, BNP Paribas, on the list of globally significant systemically important banks.

The company’s complete list of banking clients includes BBVA, BNP Paribas Securities Services, Citi, DBS, SocGen Forge, Standard Chartered’s Zodia Custody, as well as German banks DekaBank and DZ Bank.